THE NATURE~MAYA IS COMPOSED OF FIVE ELEMENTS~PANCHA TATTVA AS REVEALED IN INDIAN CANON. THE STOCK VALUATION ON THIS SITE HAS A SIMILAR CONCEPT. THE INDEXED VALUE IN POINTS OF A STOCK AT CURRENT PRICE IS ENUMERATED USING MARKET DATA FOR THE FIVE ELEMENTS. A STOCK PRICE IS VALUE NEUTRAL AT 1000 POINTS.Visit this site for Indian Stock Market analysis and stock valuation forecast.

Please note the following interesting facts about Nifty (since Jan 1999) without yourself going in to turning huge data yourself:

-Nifty PE was lowest at 10.86 on 09/05/03 and at the same time it had P/BV ratio of 2.02 and the Dividend Yield of 3.18%.

-Nifty had the highest PE of 28.29 on 08/01/08 while P/BV then stood at 6.55 (this is highest since Jan 1999) and D/Yld at 0.82 (this is lowest since Jan ‘99)

-Nifty had the lowest P/BV of 1.92 on 21/09/01 while its PE was 12.30 and D/Yld at 1.75 %.

-Nifty has 10.99 PE , 2.17 P/BV, and 2.18% D/Yld on 24/10/08 when it stood at 2582 points.

Now what may be observed in these figures, if the Nifty stays at present level:

-if the earnigs progress the PE will breach its lowest point and this is making new history.

-if the earnings remain the same, the P/BV ratio will keep improving making it move towards breaching the historical low of 1.92 P/BV, again adding new chapter to history.

-if the dividend pay-outs improve due to stoppage of expansion plans of companies in view of lower demand (ie recession), the D/Yld will improve to breach the historical high of 3.18%.

-if the companies post lower earnings the PE will go up but it has room for going up as the historical high has been 28.29 but the P/BV will still improve making it breach its lowest point 0f 1.92 which is again creating new historical point.

-if we consider the D/Yld in light of real rate of returns, it is positive while real rate of return on 10 year Govt paper would be negative (interest @ 7.5% minus rate of inflation of 11.04% ie minus 2.54%). This will be the post tax return against taxable interest returns.

-if the interest rates are reduced further, as is a possibility too, the difference in return shown above will be still more.

-if inflation remains the assets (other than cash and receivables minus debt) will keep improving besides the already existing revaluation surplus which does not reflect in figures of balance sheets.

-if the companies raise further capital at current prices, the P/BV ratio will still improve and the additional cash will either lower interest out go or will improve capacities. In both cases the PE will go further down.

-if the companies decide to use the cash generated for the buy back of shares the floating stock will diminish and will put upward pressure on prices.

-if these conditions continue the promoters can only increase their holding by open market purchase as the preferential allotment will not be liked due to high average price for last six months. This will also make the absorption of floating stock.

-if the low stock prices continue there may be attempts of hostile take over of weaker companies, even otherwise the weaker players may be bought out and their outstanding stocks extinguished.

-if the profitability gets diminished the cash-flows of the companies will have lower impact because the tax payment would first bear the impact.

-if the markets do not improve there would be lesser number of IPOs and demand pressure on investible rupee will be lower which will find way in to secondary market.

-the ratio of holding by the retail investor is at a low point compared to last year, those who booked profits in the bull run will come back to acquire shares.

-those who missed bus in the last many years bull run will try their hand out this time.

-all asset prices are going down so there will be less aversion to equity investing at a safe point.

-no capital gain tax on long term holding will invite new investors who would not like to book profits mid way ie before one year holding period.

There are many more ponderables but above are enough for today’s food for thought.

It is not surprising therefore that the analysts are being asked for the list of stocks worth buying. The lay investors do not understand much but at least understand that when 80% of value has already gone, the rest twenty percent may not go entirely. This is sort of thumb rule for them.

There are variety of fears that people are nursing in their minds. Some of them are given below:

-that the financial system is going to collapse around the world and hence the purchasing power should be converted in to bullion.

-the bank failures will be rampant, at least in case of private banks, hence money be kept only in SBI.

-the shares will be worth only as much as the paper used in certificate.

-there will be hyper-inflation and the only thing that will have value is ‘roti’ or ‘double-roti’. For the rest there will be no buyer, hence store wheat and wood.

-the recession will make companies loose all their reserves because they will be selling end product at lower value than the raw material consumed.

-the bear market will continue for eighteen to twenty four months.

-the banks do not have trust in each other and clearing process will stop.

-the petroleum is cheap hence the recessionary times are round the corner.

-the cheap commodity prices are bad for even the assemblers and value adders.

-there is no buying power with people.

-companies will have lost pricing power.

-there will be job losses on large scale.

-the machinery of companies will not be saleable as scrap even. The land and building will rot and salary payment will be eating the entire companies reserves.

-foreign capital will not enter ever in India and flight of capital will continue.

-dollar will be costly and rupee of no value.

-elections will further deteriorate the situation.

-the global slow-down will make us suffer more.

-the worst is yet to come.

Now, you have to rationalise them yourself and carry only the necessary weight of fear. I have spelt out these fears above because while they lurk they are more forceful, once you give them a cool careful glance you may overcome them.

Bernanke’s team may announce lowering of bench-mark rate to 1 pc, it will be lowest since May 2004. His other tools would be to purchasing securities directly from treasury and that way injecting a dose of cash in to economy. Fed balance sheet size will grow at good pace as it has been lending and buying assets(absorbing risks too).

Japan had to fight, only a decade or so back, deflation and banking collapse and its Central Bank saw the balance sheet size growing to more than 30 pc of GDP.

Bernanke has, for the first time since 1930s, made loans available to investment firms(it rescued AIG and Bear Stearns) while he lowered interest rates to 1.5 pc from 5.25 pc.

The world write down of 659 billion dollars have made the firms also raise 642 billion dollars of capital. The rescue package of 700 billion dollar should help the situation a great deal together with other measures.

Now, I have to tell you some thing of importance. The destruction of capital worldwide has made the rest of it shy away. The result is the prices of assets falling. This is making stock markets to tumble. The govts are filling the gap left by the absenting capital to let the economies not derail. The absentee capital will become bolder with stability returning and will want itself to work rather than remain shy and unproductive for long. The tide will have turned then. This is the time when markets have become unhooked and float in the direction of push without an opposing force controlling the movement.

The fact of the matter is why would the capital go for making itself in to a receivable, in times of low interest rates. It has to prefer its conversion in to assets directly, such assets may be productive or unproductive or be rights in to natural resource pool of the world. Equity shares therefore qualify best from the angle of ease of transfer, tax relief, no nursing, yield through dividend and no costs involved in holding. It is a good asset, only if bought at right price. This situation has arrived.

RBI has not met expectations of markets and India saw one of the worst downfalls and Nifty closed down 359 at 2520 points. There was no further release of money into market by RBI while it was observed by RBI that Indian economy is on track. The other markets did not help either, after weak Asia and weak European advices the US markets have also tumbled down today. While there is no limit to up side down side should have some limit. How in the world would one sell assets worth much more, far cheaper, just because these assets happen to be marketable ie represented by equity shares.

I find govt lacking in its duty today, back in eighties and early nineties, the govt used to direct the institutions to come for support of market, when ever there was undue pressure. Mr Pherwani of UTI used to be called big bull. He had contributed a lot to the development of capital markets. Such directives from govt are missing today.

Govt should direct banks to pick up good quality stocks without hitch. Any enlargement of crisis will make matters worse for all finance sector entities. One reassuring sign is that there is no payment crisis in markets. The banks are doing business as usual and this is a great thing.

I was surprised last year at all asset classes going up simutaneously and deducted that the world would face some crisis. Today reverse is happening while all asset classes are going down. This may be due to the rewinding action and may be this would make world healthy again. Why should all this happen, is some thing that should be found an answer for. I maintain that the supply and contraction of money in hands of central banks is the cause of it.

In India, so far, the credit off take is normal, banks are lending. The crude is further down to 64 dollar/bbl, the inflation number in coming down and only gradually, the infrastructure funding is increasing.

There hasn’t been redemption of mutual funds on an alarming scale. FIIs have sold just Rs 1450 crs worth of equities today and under what design they are selling it so cheap is again a question. While picking stocks they were seen to be doing thorough home work and why while selling no home work is being done.

The cash rich companies should have announced their ‘buy back shares’ plan. They should have done it in hoards, a few have done to. Isn’t it just proper for every good management to postpone the expansion plans and utilise cash for the share buy back. This will reward the shareholder very handsomely. But it is not being done because may be the smart management are happy for the falling markets and would pick stock for themseleves at these prices.

If only the right things were done by right people at the right time,the world would be much more prosperous. Since this does not happen, the reverse is that some in position are out to profit at the cost of general public. It is a relief that India’s 80 pc population is still in traditional style exchanges and not entangled with the new age trading style.

The fall without a matching event taking place is surprising enough. How will the truth come out?. Since the abnormal times were in every body’s knowledge, the excessive trading is not there in any case to warrant such falls.

Former US Fed Chief spoke yesterday that he never estimated that the crisis will be so big. He said that while he had some idea about that there is overplay but could not fathom the depth of it.

In hind sight it may seem that some thing could have been or should have been done by way of regulation but in an economy which is avowedly free market economy, how can suddenly a person can intervene unless there is change in policy. An early intervention would have spoilt the party then and he would have been blamed.

He was hopeful that the strong American nation would surely come out of the crisis given the rescue effort. He has endorsed the rescue efforts. In the end, the worth of highly paid Harvard (type) educated persons comes in to question. How and why they landed all their companies in such a situation. Only so much is clear that while fraud element is missing but ambition to earn mega-buck may have been at back of it. The role of rating agencies is however suspect.

China is in soup because only it had mostly benefited out of the buying power transferred to American public while the sub-prime crisis was in the making. India did not gain out of it but its markets are afflicted as the FIIs have had to withdraw money invested in India.

Now, the earlier Indian RBI chief, empowered with some exclusive powers sensed the excesses going on and acted by tightening money supply. This went too far and has strained Industry here. The new RBI Chief is acting to mitigate the hardship but as he is a bureaucrat, he is not being bold enough. The SLR and CRR should be brought back to levels in 2003. Didn’t we see the tremendous growth since 2003 (not artificial growth like China) and which may continue. This is the time when India can overtake other economies. The slow-down elsewhere does not mean that there should be slow-down here too.

Our concern was the high crude prices and rightly so but it has cooled down and allows us consume more in proportion. The gold is costly and India a traditional buyer of gold should stop investing in it at such high price. The govt should reduce interest rates to enable industry lower interest costs on sophisticated machinery and deliver manufactured goods cheaply and at internationally competitive prices. The increased supply of goods and services will take care of inflation too. This is how the nations become rich, its not by keeping enterpreneures starved of capital. Its also not by inducing people to walk away from investing in risk capital but in earning income passively by way of interest which should be domain for the widows and aged only.

The Pension and Provident Funds should be asked to go fifty-fifty in to equity and debt or at least 1/3 rd in to equities. This is necessary because it is business and industry only that will give the depositor the goods and services to be consumed in the late years. No business and no industry, there will be no capital and no interest , only books will show it as is the case with America. The future world financial order calls for greater importance being given to direct ownership of productive assets and not like having them as collateral security and asking for a fixed return by way of interest. This system actually is responsible to upset the financial apple carts as also spoiling savings of people by dilution in currency values. Both side suffer turn by turn but why should they because only some intermediaries make extra-ordinary gain through manipulation.

Not stopping here, all the saving through equity investing only should qualify for concession under section 80C. Nehru had provision of taxing unearned incomes through interest at higher levels.

The DOW was up yesterday and Indian market down, Asia is down this morning again. RBI has liberalised ECB norms and may take some policy initiatives today. The ban on short-selling through entities out-side India should not be minded because the possessor of equity should be basically free to do what ever with his equity holding. Equity market should free from every control however the exchanges should not let excesses happen and nature of transaction should be apparent to all.

SEBI has duty to ask for provisional monthly P/L figures by every 15th of the next months. In todays time of electronic accounting and information over Internet it should not be difficult, the progressive correction would automatically happen too but insider trading and manipulation would stop.